Swimming Downstream: Supreme Court of British Columbia Clarifies Section 45 of the Competition Act
In Part I of this two-part series, we covered Jensen v. Samsung Electronics Co. Ltd., where the Federal Court refused certification because the plaintiffs failed to provide sufficient material facts to support a claim for conspiracy under sections 45 and/or 46 of the Competition Act. R.S.C. 1985, c. C-34.
This week, we consider the Supreme Court of British Columbia decision of Latifi v. The TDL Group Corp., 2021 BCSC 2183 where the court held that s. 45—a prohibition on conspiracies between competitors—does not apply to “buy-side” or “upstream” agreements for the purchase of products.
Latifi adds to a growing trend in Canada where courts have been engaging a more critical review of claims at the certification stage, particularly in the context of price-fixing class actions. Latifi is also consistent with earlier decisions limiting s. 45 to “supply-side” agreements and may blunt further attempts to use s. 45 in “buy-side” cases.
The plaintiff claimed on behalf of all Tim Hortons’ employees in Canada. The defendant, The TDL Group Corp. (“TDL”) owns the Tim Hortons brand, and is the franchisor for Tim Hortons restaurants in Canada.
The plaintiff’s main allegation was that the No-Hire clause in TDL’s franchise agreements violate the Competition Act by unlawfully suppressing wages. The plaintiff claimed the wage suppression benefitted TDL and its franchisees by increasing profits, which it said violated section 45 of the Act. The No-Hire clause prevented franchisees from hiring employees from another Tim Hortons.
TDL successfully brought a motion to strike a number of the plaintiff’s claims on the ground that the pleadings failed to disclose a cause of action under s. 4(1)(a) of the Class Proceedings Act, RSBC 1996, c. 50.
TDL asserted the No-Hire clause was a “buy-side” agreement and therefore not unlawful under s. 45 of the Act, which TDL argued applies only to inherently anti-competitive “sell-side” agreements, TDL argued the No-Hire clause fell outside the scope of section 45 for two reasons:
- a plain reading of s. 45 makes it clear that the section was aimed at the supply or the production of products, not the purchase of products; and
- the purpose of s. 45 was to prohibit certain conspiracies or agreements amongst competitors engaged in the supply of a product, which are deemed to be anti-competitive, where competing suppliers agree to fix prices, allocate markets, or limit output.
Justice Sharma agreed with TDL on both points. She concluded that s. 45 cannot apply to situations where the competitors of a product are not also the same entity who supply or produce that product—s. 45 restricts sellers, not buyers.
TDL and its franchisees produce and supply coffee & donuts (among other things), not employee/employment services. Given the crux of the plaintiff’s claim was that TDL’s No-Hire clause infringed s. 45 by limiting the cost of employees (not coffee, donuts, and other goods supplied by TDL), Justice Sharma held s. 45 did not apply.
In addition to violation of s. 45, the plaintiff claimed TDL was also liable for civil conspiracy (predominant purpose conspiracy and unlawful means conspiracy), the unlawful means tort, and unjust enrichment. TDL argued each of the Plaintiff’s remaining claims were also bound to fail.
Justice Sharma concluded that all of those claims were bound to fail except of civil conspiracy based on paramount purpose and the related unlawful means tort.
There is a growing body of case law in Canada wherein Courts have delved into a more critical review of claims at the certification stage, particularly in the context of price-fixing class actions. Latifi is consistent with earlier decisions which limit the application of s. 45 to “supply-side” agreements. We will continue to follow and report on this trend as it develops.